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Simplicity is also often an indicator of truth. I think you completely missed another important point hidden in PG's article, besides the obvious compounding e

by vekker 6y ago

Simplicity is also often an indicator of truth. I think you completely missed another important point hidden in PG's article, besides the obvious compounding effect, and that is that unrealized gains would be taxed under a wealth tax regime. To simplify with a ridiculous example: suppose I have $0 to my name and I inherit a family art piece from my grandmother that happens to be valued at $2 million. The next year, under a wealth tax regime of 2% above $1 million, I owe $20,000 to the tax man even though I don't have the money in my account. That is why I think a wealth tax is a stupid idea. Why not just impose greater capital gains and dividend taxes above a certain threshold, for example? That's where wealth is realized. Until then, you're talking about taxing "imaginary" wealth. (edit: or more generally speaking, taxation should happen on transactions, not on an assumed wealth "state")

nindalf 6y ago
Let's say you inherited a home in the US valued at $2 million. You would pay 2% of that ($40,000) as property taxes, every year. If you can't afford to pay the tax, you would sell the house and pocket the $2 million. Is this so terrible? Doesn't seem to have stopped people investing in property.
- vekker 6y ago
  Uh, if that's true then yes, that seems really awful, but the market probably also makes it so the real estate prices are adjusted to that taxation regime, because buyers and sellers can take that into account before settling the transaction. With a wealth tax, you can't escape it. You would have to liquidate (parts of) your own company or other illiquid property (which might not even be possible depending on how illiquid it really is) in order to pay a tax. That doesn't seem right to me at all. Again, why would you do that, if there are much better alternatives possible (like I said, higher capital gains taxes as an example). (For context: I'm not from the USA and property taxes are not calculated on a percentage of the value of your property where I live. I'm just using USD in my example because I know there are mostly Americans here.)
- MikeUt 6y ago
  That's buying a new house every 50 years. That's re-building all of the wealth your family spent generations accumulating, every 50 years. That's a direct disincentive to saving money and frugality - the more you save, the bigger your tax gets, while your income stays the same.
  - pjc50 6y ago
    > re-building all of the wealth your family spent generations accumulating, every 50 years. Correct, that's the point. > the more you save, the bigger your tax gets, while your income stays the same. Only if you're a completely useless investor. Most people's income increases as their wealth increases. That's part of the problem. Especially the "r > g" question: are you growing the pie or simply sitting on a larger share? On the other hand, this can and should be irrelevant to the average family. Start the wealth tax at $1m, say.
    - literallycancer 6y ago
      Have you actually checked what's available in places like LA for $1m?
      - pjc50 6y ago
        I hadn't, because the precise value doesn't matter, but from here it looks like that's above the median: https://www.zillow.com/los-angeles-ca/home-values/ https://www.zillow.com/los-angeles-ca/home-values/ (I was also assuming it would operate like income tax allowances, where you deduct the $1m first and then apply the percentage to the remainder; and we should also consider families, so you could co-own a $2m home without hitting that limit) The question of which inflation measure the number should keep pace with might be more important in the long term...
    - MikeUt 6y ago
      > Most people's income increases as their wealth increases. That's part of the problem. But that's already solved by taxing income.
  - 6y ago
SamBam 6y ago
You're making an obvious strawman argument by deliberately picking an asset that isn't fungible and doesn't increase in value like everything else. Any sensible person would, at that point, sell the art, so now we can talk in sensible terms, with real fungible and taxable assets. Wealth compounds much, much faster than the tax burden grows. Someone who inherits $3 million (not much from the point of view of the very-wealthy) can live comfortably on the growth alone while still compounding their wealth further every year. The only way a wealth tax would compound faster than the wealth itself is if it is larger than the growth rate of the wealth. And since the growth of wealth (e.g. by just putting it in the stock market) has averaged at ~8-10% over the past several decades, a 1% tax is not going to eat into a person's wealth over time. It's simply going to slightly slow that growth down.

by vekker 6y ago

nindalf 6y ago

Let's say you inherited a home in the US valued at $2 million. You would pay 2% of that ($40,000) as property taxes, every year. If you can't afford to pay the tax, you would sell the house and pocket the $2 million. Is this so terrible? Doesn't seem to have stopped people investing in property.

vekker 6y ago
Uh, if that's true then yes, that seems really awful, but the market probably also makes it so the real estate prices are adjusted to that taxation regime, because buyers and sellers can take that into account before settling the transaction. With a wealth tax, you can't escape it. You would have to liquidate (parts of) your own company or other illiquid property (which might not even be possible depending on how illiquid it really is) in order to pay a tax. That doesn't seem right to me at all. Again, why would you do that, if there are much better alternatives possible (like I said, higher capital gains taxes as an example). (For context: I'm not from the USA and property taxes are not calculated on a percentage of the value of your property where I live. I'm just using USD in my example because I know there are mostly Americans here.)
MikeUt 6y ago
That's buying a new house every 50 years. That's re-building all of the wealth your family spent generations accumulating, every 50 years. That's a direct disincentive to saving money and frugality - the more you save, the bigger your tax gets, while your income stays the same.
- pjc50 6y ago
  > re-building all of the wealth your family spent generations accumulating, every 50 years. Correct, that's the point. > the more you save, the bigger your tax gets, while your income stays the same. Only if you're a completely useless investor. Most people's income increases as their wealth increases. That's part of the problem. Especially the "r > g" question: are you growing the pie or simply sitting on a larger share? On the other hand, this can and should be irrelevant to the average family. Start the wealth tax at $1m, say.
  - literallycancer 6y ago
    Have you actually checked what's available in places like LA for $1m?
    - pjc50 6y ago
      I hadn't, because the precise value doesn't matter, but from here it looks like that's above the median: https://www.zillow.com/los-angeles-ca/home-values/ https://www.zillow.com/los-angeles-ca/home-values/ (I was also assuming it would operate like income tax allowances, where you deduct the $1m first and then apply the percentage to the remainder; and we should also consider families, so you could co-own a $2m home without hitting that limit) The question of which inflation measure the number should keep pace with might be more important in the long term...
  - MikeUt 6y ago
    > Most people's income increases as their wealth increases. That's part of the problem. But that's already solved by taxing income.
- 6y ago

SamBam 6y ago

You're making an obvious strawman argument by deliberately picking an asset that isn't fungible and doesn't increase in value like everything else. Any sensible person would, at that point, sell the art, so now we can talk in sensible terms, with real fungible and taxable assets. Wealth compounds much, much faster than the tax burden grows. Someone who inherits $3 million (not much from the point of view of the very-wealthy) can live comfortably on the growth alone while still compounding their wealth further every year. The only way a wealth tax would compound faster than the wealth itself is if it is larger than the growth rate of the wealth. And since the growth of wealth (e.g. by just putting it in the stock market) has averaged at ~8-10% over the past several decades, a 1% tax is not going to eat into a person's wealth over time. It's simply going to slightly slow that growth down.